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Performance Metrics to Match Your Practice

By Chris Latham July 16, 2013

In principle, advisors can apply performance metrics to any aspect of their practice that produces a number: assets, revenues, clients, employees, hours and more. So how to decide which data make the most sense for measuring business success? And what’s the best way to collect and review them?

For advisors who are employees or affiliates of big firms, part of the problem is solved for them: They get bushels of reports on a regular basis. But even they need to figure out which metrics merit their attention and which are merely noise. Among the fundamentals to consider are your compensation structure, size of the business, whether or not you work with a team, and the breadth of your menu of services.

“I think very few advisors are assessing metrics with any regularity for their specific firm,” says Matt Matrisian of California-based Genworth Financial Wealth Management. Picking the right performance indicators, he says, can help advisors make the right strategic decisions for growing their business.

Client Value

Matrisian, whose recent book The Power of Practice Management includes a chapter on benchmarking performance, says a few metrics apply across the board: total revenue per client, assets under management per client and revenue as a percentage of assets.

Still, individual advisors have their favorites. As an independent affiliate of Raymond James, Randy Carver has access to lots of analytical tools and dozens of reports, including industry comparisons. He considers return on assets all-important, closely followed by recurring revenue versus transactional revenue. And of course there’s profit margin. Carver, who manages about $800 million for 2,300 clients out of Mentor, Ohio, calls those metrics “no-brainers.” He looks at them monthly at a high level and twice a year in depth.

But Carver cherishes a harder-to-quantify metric: client value in terms of referrals. “If I have a smaller client who sends me a lot of business through friends, that’s worth a lot,” he says.

For sole practitioners without a big firm’s resources behind them, client profitability can make or break the business. James Crosson, who manages about $153 million for 330 clients in Fall River, Mass., runs Investors Capital on his own, assisted only by his wife and son. He pays attention to how many of his new clients have at least $250,000 in investable assets. He says larger accounts actually take up less of his time while contributing more to the bottom line.

Indeed, hours spent per client is another metric that can help advisors gauge success. Robert Sofia of Platinum Advisor Strategies in The Villages, Fla., notes that this measurement can be looked at in a couple of ways. An advisor who wants to deepen client relationships might set goals for how much time to spend on clients of different asset tiers. Advisors who want to improve their work-life balance might keep track of how many hours of free time they have per week and set a minimum.

By the Bucket

In a new and growing practice, pretty much everything is likely to be measured. Julie Littlechild, founder of research firm Advisor Impact, puts metrics into four buckets: productivity, profitability, growth and stability. For example, an advisor might measure productivity by assets per full-time employee. For profitability assessments, clients can be divided into tiers by asset size. Growth metrics include number of clients and asset levels, while stability involves retention rates for quality clients and employees.

Ted Smith of UBS Financial Services doesn’t have to spend time crunching numbers, because the bank provides them. The Baltimore-based advisor, who manages about $800 million for 63 families, receives daily revenue reports and even gets information on where his pricing falls relative to peers nationwide.

Ted Smith

Smith says his firm’s support lets him focus on relationships. One of the few metrics he must calculate himself is the number of hours he spends with each client — and he says that’s the one that really matters. “Ultimately, the better you do for your client, the better you do,” he says.